UHERO: D.C. politics hurts isles

February 16, 2013

HONOLULU (AP) - An economic forecast by the University of Hawaii says Washington haggling over federal spending will weigh on Hawaii's economy in the short and long term.

The university's Economic Research Organization said in a forecast released Friday that automatic spending cuts set to kick in March 1 are unlikely to occur but represent just the start of several hurdles.

A budget resolution expires at the end of March, threatening all nonessential government operations. A debt ceiling deadline is in May.

Forecasters say brinksmanship will continue to weigh on Hawaii's economy even as the private sector shows promise.

The report says that in the long term, a need to cut federal spending will be a drag on Hawaii's economy for many years.

But the state will benefit from the military's strategic turn toward the Asia-Pacific region.

Hawaii's large military presence represents 9.6 percent of the state's gross domestic product, the highest share for any state in the country, the report said.

"The sequesters represent a significant threat," forecasters said in the report. "Still, it is possible to overstate the potential impact."

The military already has a freeze on civilian hiring, and salaries of troops are protected from sequestration, the report said. And, unless they're avoided, automatic spending cuts would include equal reductions in nondefense spending.

UHERO said in its report that it expects tourism to increase this year, then grow more slowly in 2014 and 2015.